Cosmos International Management Co., Ltd.

News (December 15, 2011)

Reform proposal for the 2012 fiscal year- regarding international taxation

On December 10, 2011, the Japanese government has approved and announced a tax reform proposal for the 2012 fiscal year.

The details of the reform proposal regarding international taxation are as follows. Overall the reform looks minor, such as no change for transfer pricing and foreign tax credit, but it should be noted that the reform proposal includes the requirement for Japanese residents owning more than JPY 50 million overseas properties to submit a statement of foreign assets to the tax authority.

(1) Adjustments of the domestic law regarding assistance in recovery and service of document
Based on the fact that Japan signed gThe Convention on Mutual Administrative Assistance in Tax Mattersh in November this year, the review and amendment of regulations will be made to adjust the relevant domestic laws.

(2) Establishment of gStatement of Foreign Assetsh
The proposal states that residents of Japan who own more that JPY 50 million overseas properties as of December 31 are required to submit the statement including type of property, quantity, price and other necessary information to the head of local tax office by the following yearfs March 15. The proposal also states about penalties for non-submission or false submission of the statement (imprisonment of less than one year or monetary fines of less than JPY five hundred thousand, but with a room for leniency).

(3) Introduction of taxation on excessive interest payments regarding related party loan transaction
The proposal includes the establishment of a new system; in case the amount of net interest expense (after deducting interest income etc.) to related party exceeds 50 percent of adjusted taxable income, the excess amount will not be tax-deductible for the applicable business year.

EThe amount of net interest expense to related parties is JPY ten million or less for the applicable business year
ETotal amount of interest expense to related parties is 50 percent or less of the total interest expense for the applicable business year
(Relationship with existing thin capitalization taxation)
EIf both this newly established system and thin capitalization taxation are applicable, the greater of the calculated non-deductible amounts will be used as the amount of non-deductible expense for the applicable business year.
(Relationship with anti-tax haven rules)
EIf the payment of interest etc. to a specified foreign subsidiary is subject to both this new system and the anti-tax haven rules, the adjustment such as subtracting the combined amount under the anti-tax haven rules (only relevant to the specified foreign subsidiary) from the non-deductible amount under this new system (limited to the portion of interest paid to the same foreign subsidiary) will be made.

(4) Amendment of double taxation adjustment measure concerning anti-tax haven rules
As for the double taxation adjustment, in case a domestic corporation receives indirect dividend etc. from a foreign second-tier subsidiary subject to the application of anti-tax haven rules through a foreign first-tier subsidiary, the amount of indirect dividend will be calculated using the domestic companyfs shareholding ratio to the foreign first-tier subsidiary as of the base date regarding dividend received by the domestic company from the foreign first-tier subsidiary on the day closest to the end of business year or the date comparable to the base date (currently: at the end of business year).


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